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Rural Rescue

David Burnett
Founder, Technopreneurial.com
April 2001

When Grameen Bank commenced operations in 1983, its goal was unprecedented: to alleviate poverty in rural Bangladesh by providing collateral-free business loans to the poorest of the poor. Given the traditional view that the poor are not credit-worthy, Grameen's unconventional approach to development and lending initially encountered widespread skepticism. Nonetheless, the Bank's revolutionary microcredit program has silenced the critics with its remarkable repayment rate of approximately 94%. By providing access to credit and capital and encouraging a disciplined approach to business, Grameen has provided Bangladesh's poor with the opportunity to benefit directly from free enterprise and self-employment.

In 1994, Grameen Bank embarked on a new mission that is equally revolutionary. Driven by the belief that poverty largely exists because of a lack of information, the Bank began investigating the benefits of telecommunications access in rural Bangladesh. In order to overcome the obstacles of a lack of landlines and access, Professor Muhammad Yunnus created Grameen Telecom to spearhead the deployment of mobile phones in the rural areas of Bangladesh.

Mr. M. Masud Isa has been involved with Grameen Telecom (GTC) since the initial stages. Originally serving on the Board of Directors, Mr. Masud became the Managing Director and CEO of GTC in December 1999. He first joined Grameen Bank in 1985 and has since served as the Managing Director of 4 different Grameen Family companies. In addition to his current position at GTC, Mr. Masud is also the Managing Director of Grameen Knitwear Ltd. and sits on the Board of Directors for 8 different Grameen Family companies, including GrameenPhone Ltd. and Grameen Communications. Mr. Masud holds an MBA from the University of Dhaka.

In a recent interview, Mr. Masud discussed the goals and progress of GTC.

Q: What was the primary motivation for creating Grameen Telecom?

A: Bangladesh's infrastructure, be it physical or any other criteria to denote its level of development, is very inadequate. The rural areas are not connected by good roads or any form of communication, which has, in effect, made them remote, alien, and disconnected from the cities and urban areas. Bangladesh has a population of about 140 million, and a density of about 2000 people living in every square kilometer. Yet it has only about 450,000 fixed telephones-mostly in the city areas. Therefore, tele-density in Bangladesh is one of the lowest in the world-about 0.4 percent.

The rural areas are practically devoid of any telephone lines, in addition to being separated by a lack of roads and train communication. Big rivers and numerous tributaries and distributaries of the big rivers pose a serious threat to fast and speedy communication. This factor has impeded the development of the rural areas of Bangladesh, where more than 80 percent of the people live. In this dismal scenario, the experience of Grameen Bank has shown that if the rural poor could be given access to telecommunications to obtain information for their businesses, commerce, or personal gains, then the effort to bring in the fruits of development could be ensured faster in the rural areas.

Q: When did GTC begin offering services?

A: Grameen Telecom, which operates as a not-for-profit company, was established in 1995 with the intention of making available telecommunication services to the rural inhabitants of Bangladesh. It's dual objective was a.) Ensuring universal access to telephones for those who can not afford to possess one and b.) Using this as a revenue generating option, thus contributing to poverty eradication.

Later, a joint venture company named GrameenPhone (the GSM Operator company) was established with Grameen Telecom, Telenor Invest A.S. of Norway, Marubeni Corporation of Japan, and Gonofone of the USA as shareholders. This company eventually received a license from the Government of Bangladesh in November 1996 and commenced operation in March 1997.

Q: What are the goals of Grameen Telecom?

A: The primary goal is to remove the isolation of villages from the cities and towns by ensuring smooth information flow. From the Grameen Bank's microcredit experience, we find that the lack of information is one of the major obstacles towards poverty eradication. The goals of Grameen Telecom may be summarized as the following:

  • Provide easy access to telephone services all over Bangladesh.
  • Initiate new income earning opportunities for the villagers, especially the poor Grameen Bank borrowers.
  • Gradually bring the full potential of the Information Revolution to the doorstep of the rural poor and thereby introduce telecommunication as a new weapon against poverty.

Q: In the early stages of GTC, how did you envision the technology being used?

A: The initiative for setting up Grameen Telecom directly came from the thought of using IT for poverty eradication. We were exploring whether Grameen Bank's 2.4 million micro-borrowers could be given the opportunity of telecommunication so that they could access information with regard to product prices in different areas where their products are ultimately sold. They could also use the technology to have their grievances communicated to the local power elites or people in charge or to access a hospital or school. The whole world around them could now be connected and opened up right before them. This intention and this background were basically the reasons for Grameen to venture into this project.

Q: Who was involved in the decision to create GTC?

A: The idea to use IT as an option for poverty reduction came from Professor Muhammad Yunus, the founder of Grameen Bank-the micro-finance outfit of the Grameen Family of companies. He found that the Grameen Bank borrowers could not make much productive use of their investments, mostly agro-based, because of a lack of access to the market and the tools that could not only enhance their productivity but also facilitate them in getting information about the market and their products. Technology is an empowering tool. So, if this could be packaged to suit the requirements of the poor, then it would have the possibility of accelerating the effort for poverty reduction.

Q: Did the government of Bangladesh play a role in setting up GTC?

A: The government did not play any part in it. Grameen is neither a government organization nor was it created with government initiative. The impetus behind the setting up of the organization primarily came from the concern of using IT as a tool for poverty reduction in the backdrop of endemic scarcity of telephones and any modern means of communication in rural Bangladesh, which has practically become isolated from the rest of the country and the world. This phenomenon has impeded any effort for socio-economic upliftment. Cell phones appeared to be a cost effective option.

Q: What is Grameen Telecom's business model?

A: Grameen Telecom holds a 35% share of GrameenPhone Limited (GP), a company for profit, and is expected to take over the majority stake from October 2002. GrameenPhone Limited is the largest GSM Cellular Mobile operator in Bangladesh, commanding about 70% of the mobile subscriptions in the country. The company is expected to have a subscriber base of about 1.6 million by 2005. One of the unique features of this company is that its network is being gradually expanded in rural areas to connect the villages. As an initial strategy, GP has already leased from the Government a 1600-kilometer fibre optic network running alongside the railway track all over Bangladesh.

Grameen Telecom also organizes the Village Phone programme. After GTC buys airtime in bulk from GrameenPhone, it resells the airtime to some of Grameen Bank's borrowers, who are trained, comprehend the opportunities, and have a concrete understanding as to how to organize a business. The borrowers then resell the airtime for their village phone in a manner similar to a pay phone. The village phone operators thus run a business based on selling access to the mobile phone.

For the village phone operations, three companies are working together: Grameen Bank (GB), Grameen Telecom, and GrameenPhone Limited. GTC provides phones and connections to GB borrowers; GrameenPhone provides the GSM network; and GB provides credit under the lease finance program of the Bank.

Grameen Telecom also acts as a dealer of GrameenPhone and sells mobile connections to urban subscribers on an absolutely commercial basis. GTC is also the sole distributor of Nokia mobile handsets in the territory of Bangladesh. We have not distributed any other brands as of yet, but we have no restrictions in doing that. We would be happy to distribute any other good brand along with Nokia.

Finally, in the future, Grameen Telecom is planning to set up Village Telecom Centers that are to offer phone, fax, e-mail, word processing, data entry, distance education, health assistance, adult education, etc. One of Grameen Bank's other peer companies, Grameen Communications, has already set up two Internet kiosks in the villages which are running on a commercial basis. Grameen Telecom is examining the concept for spreading it in other villages.

Q: How many people currently have access to Village Phone services?

A: GTC has set up 3,800 village phones as of 20 January 2001. On average each phone serves 2,500 rural based people. Therefore it is estimated that the Village Phone program has currently provided phone services to around 9 million people. Our vision is to establish our presence in all the 68,000 villages in Bangladesh.

Q: What is the timeframe for the roll out of mobile services to additional rural areas?

A: At the moment, GrameenPhone's network has covered approximately 33% of the total area in Bangladesh. But the intensity of the coverage in terms of signal quality needs to be improved. Efforts are underway to achieve this. We are expecting to cover the entire Bangladesh, i.e. 56,126 square miles, by 2005 as per the existing business plan.

Q: Is the network expansion something that was legislated by the government as a condition for obtaining the license?

A: No, it was not a part of a government condition. It is rather the commitment of Grameen to make this facility available for all the people, including the rural ones living in the remote parts of the country.

Q: How did you decide what network technology to use? Did you have any technology advisors?

A: The technology being used is GSM, i.e. General System Mobile. When the company was conceived, we decided to go with GSM because it was a popular technology that was being widely used in Europe. So, there was no such advisor who guided us. All the partners of the operating company, i.e. GrameenPhone, decided together as to the type of the technology to be used.

Q: Earlier you mentioned the development of Village Telecom Centers. Are these just a long-distance goal, or do you already have a planned date for the introduction of such services?

A: It is in the offing. We are currently working out the details for setting up the Village Telecom Centers (VTCs). We hope that within 2001 some of the centers will be in place. The VTC will be built by Grameen Telecom, and GrameenPhone will provide the network support. It seems ambitious but not undoable. The network infrastructure already exists for GrameenPhone. Thus, only the equipment and the building for the tele-centers would need to be procured by Grameen Telecom. We are exploring different funding options for this. Initially we will deploy VTCs to the areas where the people already have familiarity with the use of telephones. The initial sites would be the small town fringes with electricity and back-up supports.

Q: How about Grameen Communications' Internet kiosks? What has been the progress of this service?

A: To enhance the existing Internet kiosks, Grameen Communications (GC) is partnering with Hewlett Packard to set up multipurpose service centers in the rural areas to provide facilities for e-health, e-education, e-commerce, e-banking, etc. The Japanese Government has provided some money for setting up Multi Media Medical Referral Centers in the rural areas. The software for this purpose will be developed by NEC (Nippon Electric Company) of Japan and GC. The patients will have on-line and auto diagnosis of their ailments. Additionally, an on-line cyber kiosk is being set up by Grameen Communications in a place called Mirzapur, 50 miles north of Dhaka city. This kiosk will have a microwave link connected with the VSAT located at Dhaka in GC. The users will be able to directly browse the Internet and web sites. This kiosk will also offer computer training in packaged software, word processing, and data processing. In fact the process for setting up this enhanced kiosk has already started. It will be operational within the next six months.

Q: What are the mobile phone and Internet access charges?

A: Phone calls cost the standard call charge plus an additional .018 US cents per minute. In other words, the mobile phone charges cost a total of Taka 6 per minute, which is the standard charge of .109 US cents plus the additional .018 US cents. It's very cheap considering the consumer surplus that is generated by our objective of fighting poverty with telecommunications. For Internet access, the users are paying Taka 1.50 per minute or .0272 US cents.

Q: How many people are using the Internet kiosks?

A: In two of the existing kiosks the regular number of combined users is 200 (one hundred in each of them) on an average. The number is increasing slowly as more and more people are getting to know of the technology and its benefits.

Q: Who maintains the kiosk centers?

A: The PCs are being maintained by the Grameen Communications' staff who are posted in the centers. For more complicated or serious problems our maintenance people from the head office in Dhaka visit the centers. At the moment 6 PCs are in each of the centers. Looking at the trend, it is evident that within a few months the number of the PCs will need to be increased. The current plan is to double the number. The role out in other villages will depend on the success of the first few centers. Once our initial model is refined, it will be easy to quickly replicate it in other villages.

Q: What are the differences and similarities between Grameen Telecom and a traditional telecommunications company?

A: Grameen Telecom is a not-for-profit company. Any surplus that it will make will be invested towards furthering the objectives of the company. The company does not have any individual owner/shareholder who could enjoy the dividends from its operation. The company is totally dedicated towards changing the rural telephony scenario in Bangladesh.

It is similar to other companies in that it uses modern management tools and techniques in reaching its objectives. In its urban operation it is like any other commercial company. Its basic goal is to maximize returns through the optimum utilization of the network and to ensure that this is a self-sustaining endeavor.

Q: As a not-for-profit company, is Grameen Telecom more like a traditional business or more like a non-governmental organization that promotes rural development?

A: Grameen Telecom is a unique organization which attempts to combine the best practices of both a business and an NGO. We believe good development means good business. Unlike an NGO, which in most cases run on donated finance, Grameen Telecom has borrowed capital at market rates to set up its operation.

Q: Has GTC broken even yet?

A: Grameen Telecom booked substantial operating losses in the first three initial years of operation. However, the earning trend is very satisfactory, and we hope that gradually we will be able to overcome all losses and also pay back the money that we had to borrow to establish both Grameen Telecom and GrameenPhone.

Q: Do you believe other telecommunication companies can follow GTC's lead in promoting development by starting microcredit village phone programs?

A: It is our belief that this model could be replicated in developing countries towards providing universal access to telephones, where currently there is a gap. Our experience tells us that rural telecom is a profitable business and definitely has the critical mass needed for the viability of the project. Telecom companies in developing countries can operate such a business by joining forces with local microcredit organizations towards maximizing business potentials and also fulfilling social obligations.

About the author

David Burnett is the Founder of Technopreneurial.com and a Thomas J. Watson Fellow. His current research includes working on a book about the collected "lessons" of Asia's new breed of technopreneurs. The author can be reached via e-mail at david [at] technopreneurial.com.

For questions about this site, please contact david [at] technopreneurial.com.

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